Pension Capital Strategies have revealed this month that only five FTSE 100 companies has a pension scheme in surplus. In fact, nearly ten percent of companies featured on the index have deficits that are so immense that they threaten the viability of the business, the research that was sponsored by JP Morgan Cazenove concluded.
Who is in the biggest trouble? According to the PCS study, BT and British Airways have pension liabilities of more than three times their stock market value. Both former state owned monopolies, BT has a deficit of £9 billion, which almost dwarfs British Airway’s £3.5 billion shortfall. How can they possibly bridge these gaps?
Billions of pounds have been shovelled into the black holes that final salary pension schemes have become. The PCS report said that £11bn had been paid in last year alone. So why had this amount failed to make a dent on the outstanding amounts?
Commentators have blamed the fact that the money was invested into low yielding bonds rather than equity investments, which means that the pension schemes’ investments did not benefit from the stock market gains that would have accrued had the money been invested in shares. On this point one could have some sympathy for the scheme’s fund managers – having been criticised for being too cavalier they have played it safe and still lost out.
It seems that the grocers are leading the way with alternative methods of reducing their deficits. Marks & Spencer and Sainsbury’s have recently announced that they will be transferring some of their properties, or shares in their properties into their final salary schemes to help fill some funding gaps.
How much longer can the final salary scheme last as a concept? The authors of the PCS report claim that they are likely to be extinct by 2013. Rising life expectancy and gloomy forecasts are proving to be their downfall.
Meanwhile, the PCS report did name some companies with some good news to share about their pension schemes. Companies with well funded schemes in surplus include Land Securities, Prudential and the London Stock Exchange.
